Bell, J & Faria, T (2007) ‘Chapter 11: Critical Issues for a Revenue Management Law’


At a fundamental level Precept 7 deals with the trade off between using revenues to benefit the present generation or accumulate assets to yield returns for the future generation. Once this has been decided the question arises as to how those investments are to be made. The Precept recommends for limited immediate consumption but for a substantial portion of revenues to be invested in domestic assets. Investment in foreign assets such as Sovereign Wealth Funds (SWF) is discouraged for developing countries.

Whilst most of the paper is oriented towards oil funds, the paper provides general insights on structuring laws to build revenue management institutions.


Precept 8 states that revenue volatility ought to be addressed through gradually and smoothly building up domestic expenditure and investment from resource revenues. Due to resource volatility spending and revenue generation ought to be decoupled through establishing a ‘Sovereign Stabilization Fund’ – similar to a SWF but with the purpose of covering short run volatility. As such the paper provides useful guidelines on the legal and institutional instruments which can support in the management of resource wealth.


The chapter by Bell and Faria addresses the institutional and legal issues in the management of resource wealth. The authors consider legal aspects such as integrating an oil revenue management system with international obligations as well as more political concerns such as transparency and oversight and control mechanisms. Drawing on evidence from Sao Tome and Principe the authors provide a number of recommendations for establishing an oil fund:

     - Large revenue flows ought to be deposited in major international institutions and held in a foreign currency.

     - The fund ought not to be invested in the domestic economy in order to reduce political influence.

     - An investment committee ought to be established and charged with oversight and investment policy of oil fund assets.

     - Portfolio managers ought to be responsible for carrying out the investments.

     - The use of oil resources ought also not to be used as securities for loans, instead lending should be based on credit worthiness.

In establishing a permanent fund inevitable questions arise regarding intergenerational equity, estimates about the size and value of deposits and the efficiency of expenditures. In addressing these issues evidence can be drawn from Timor-Leste, which calculated the ‘maximum sustainable annual expenditures’ by finding the present value of the resource and making available for immediate consumption the expected return on estimated value in addition to the return on the balance in the account.

Access this chapter here.